Friday, September 29, 2006

Mutual Funds maintain a current account with the RBI. This cash account enables the funds to route transactions at a quicker pace. The subscriptions they receive from investors can be immediately deployed in the money market. The funds can debit their account with RBI well before the cheques given by the investors get cleared and money actually flows into the account. Thus there is an element of overdraft being allowed by the RBI which is called ‘daylight exposure’.

The RBI has decided to discontinue this practice of overdraft facility it bas been giving for the mutual funds. RBI said this facility will be withdrawn from November. The RBI feels the law does not allow extending such credit called ‘daylight exposure’.